Democrats Punt On Tax Cut Extention

The Democratic Party seems to have decided that the best way to begin the final leg of the midterm election campaign is with a legislative cave-in of epic proportions.

There will be no votes on extending any portion of the Bush tax cuts until after November’s elections:

Senate leaders on Thursday abandoned plans to extend a broad array of tax cuts before the November elections, delaying a vote that could affect tax rates for virtually every American.

“Democrats believe we must permanently extend tax cuts for the middle-class before they expire at the end of the year, and we will,” Jim Manley, a spokesman for Senate Majority Leader Harry M. Reid (D-Nev.), said in a statement. “Unfortunately, to this point we have received no cooperation from Republicans to do so . . . We will come back in November and stay in session as long as it takes to get this done.”

Unless Congress acts, tax cuts enacted during the Bush administration are due to expire in January, raising income tax rates across the board.

Republicans want to permanently extend the cuts, increasing borrowing by nearly $4 trillion over the next decade. They say they are not holding up debate and that Democrats have yet to file a bill.

“We hope Democrats . . . will cooperate despite their burning desire to raise taxes on small businesses and families in the middle of a recession,” said Don Stewart, a spokesman for Sen. Mitch McConnell (R-Ky.).

President Obama wants to extend the cuts only on income under $250,000 a year for families, a proposal that would reduce revenues by about $3 trillion by 2020.

Senate Democrats had been preparing a less expensive bill that would extend some tax provisions only temporarily. Just a few weeks ago, Democratic leaders in both the House and Senate argued that a pre-election tax battle would put Republicans on the defensive, forcing them to justify borrowing billions of dollars to pay for tax breaks for the nation’s 3 million wealthiest families.

Some Republicans were nervous about that prospect. But Democrats were equally divided, with many conservatives arguing that the ailing economy – and a contentious election season – made this a bad time to raise anyone’s taxes.

Democratic leaders also faced a further difficulty. Given the balance of power in the Senate, Democrats cannot push anything through the chamber without Republican cooperation.

Among those senators who want to see the tax cuts for the wealthy expire, some acknowledged their odds of success might be better after the election, when retiring Republicans may be more willing to break with party leaders.

Of course, this calculus fails to take into account the fact that 3 of the Senate elections that will take place on November 2nd are Special Elections to fill a vacancy, meaning that the winner will take office immediately after the results are certified. In those elections Republican.s currently lead or are within the margin of error in 2 — West Virginia and Illinois. If Republicans manage to win one or both of these elections, it will make overcoming any Republican filibuster all the more difficult, and will require Democrats who want to get a tax package through Congress before adjourning to deal with Republicans far more than they’ve had to in the past. So, unless every you see three or four lame duck Republicans jump ship on taxes, which seems unlikely, the Democratic gamble will have been for naught.

It seems to me that the smart political move for Democrats would’ve been to put their tax cut extension up for a vote and force the GOP to go on record prior to the election. The fact that they didn’t indicates one of two things. Either they are far more politically inept than they’ve given any indication of being to date. Or, they don’t have enough control over their own caucus at this point to guarantee they their own tax package would pass. If you’re a Democrat, neither one is good news.

Politically, this plays right into Republican hands. They’ve got another issue for the elections, and it ties nicely into the economic issues that will be the primary focus of the last five weeks of campaigning. It also means that, in one form or another, the Bush tax cuts will be extended. The only question is whether it will happen in a lame duck session, or after the 112th Congress convenes in January 2011.

FILED UNDER: Campaign 2010, Congress, Taxes, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. J.W. Hamner says:

    They’ve got another issue for the elections, and it ties nicely into the economic issues that will be the primary focus of the last five weeks of campaigning. It also means that, in one form or another, the Bush tax cuts will be extended. The only question is whether it will happen in a lame duck session, or after the 112th Congress convenes in January 2011.

    Nonsense. If they don’t get extended now, then they’re done… which is the best possible policy outcome from a liberal perspective. Even if it’s not great politically, what better chance do we have to get taxes back to reasonable and responsible levels?

  2. If they don’t get extended now, then they’re done

    You keep telling yourself that. Also, repeat the phrase “November won’t be so bad.” Maybe it’ll come true.


  3. J.W. Hamner says:

    You keep telling yourself that.

    So how exactly do they extend tax cuts that have already expired? Time machine? You are an optimist!

  4. So how exactly do they extend tax cuts that have already expired? Time machine?

    It would be very easy to pass legislation in January or February 2011 that would make the extension retroactive to the beginning of the year. All that it would require is that the IRS calculate withholding adjustments to take that into effect. It happens all the time.

  5. Herb says:

    “Republicans want to permanently extend the cuts, increasing borrowing by nearly $4 trillion over the next decade.”
    If that’s “fiscal sanity,” then Charlie Manson is a well-adjusted individual.

  6. J.W. Hamner says:

    Sorry to be excessively pedantic, but that’s still not an extension of Bush’s tax cuts. To repeat: If they don’t get extended now, then they’re done…. there is literally zero percent chance it happens during a lame duck session.
    Maybe the GOP can construct a tax cut package that’ll replicates Bush’s cuts that doesn’t get vetoed, but I don’t see it.

  7. ponce says:

    Does anyone really doubt the super rich control both of America’s political parties?
     
    And isn’t that really how things outta be?

  8. TG Chicago says:

    J.W. Hammer – I find your take interesting. However, how does this help Democrats politically? If things go as you say, then perhaps the fight after the election will be Dems want middle class (and below) tax cuts while Reps want all cuts extended.

    But if Reps have control of the House and gains in the Senate, they will claim a mandate for all Bush tax cuts. They will frame any Dem efforts to limit tax cuts as obstructionism. Reps will have 100% of their party behind their bill while Dems inevitably have a few creep over to the Rep bill, thus making the Rep bill look like the “reasonable compromise”. How does this end well for Dems?

    The only way it can is if Dems can make it look like Reps are obstructing the middle class tax cut. I mean, even if Obama vows to veto a bill that includes tax breaks for the wealthy, and that forces Reps to go with Dem bill or nothing, I’m not sure that plays well in an environment where the press has just been beating Obama to death with the inevitable “ELECTION RESULTS REPUDIATE OBAMA AGENDA” headlines. Tell me how you think this plays out.

  9. J.W. Hamner says:

    However, how does this help Democrats politically?

    In the short term, the Democrats are doomed politically. Period.  So the question should be: which candidates would be saved by passing an extension of the middle class tax cuts? I think it’s not more than a few, and they’re likely to be incumbent Blue Dogs who will be hostile to Obama for the next 2 years.
    The strongest counter-factual to the above assertion is Russ Feingold. If he loses, then you can’t help but wonder whether he could have won with a middle class tax cut extension.

    I mean, even if Obama vows to veto a bill that includes tax breaks for the wealthy, and that forces Reps to go with Dem bill or nothing, I’m not sure that plays well in an environment where the press has just been beating Obama to death with the inevitable “ELECTION RESULTS REPUDIATE OBAMA AGENDA” headlines.

    I think that an Obama promise to veto any tax cuts for people making over 250K is an extraordinarily strong play… made stronger, in fact, by a hypothetical GOP control of both chambers, since then the media narrative switches to favor him as the scrappy underdog.  Standing strong against the tide of fiscal irresponsibility is a favorite of the Beltway crew, and it would be pretty easy to work the “I want to help the middle class, but the GOP only wants to help their Wall Street banker friends… we need to be responsible about our national debt, and giving hedge fund managers more money for yachts isn’t that.”
    I think the worst case scenario is an extension/repeat of Bush’s middle class tax cuts…  I don’t see the $250K+ cuts having a prayer, unless they come to a deal before the election. From a liberal policy perspective, I hope they both expire.

  10. James says:

    Just an observation, about 50% pay no taxes, and those that pay taxes are on the hook
    for the Debt? I remember when every one payed if you had an income.
    It is true Capital is portable, not only is it leaving, foreign capital inflow
    will look else where.
    John Deere and Russia are talking, I look for John Deere to set up shop in Russia.
    Left or Right it’s the same Train WRECK 🙂 Soak the Rich begets Higher Prices.:)
    “There are no Solution, just Comprise” Walter William PHD (Economist)

  11. ponce says:

    “I remember when every one payed if you had an income.”
     
    I thought everyone “payed” payroll taxes.

  12. Pete says:

    The economic ignorance of those of you who favor raising taxes is breathtaking. Do you honestly believe the rich will voluntarily cooperate and hand over larger sums of their earnings, dividends, capital gains? On what planet do you live? The few mega rich like Gates and Buffett may think it is a good idea since they could give up 80% of their wealth and they’d still be super rich, but those well below them who will be taxed more will simply hire smart people to shield their wealth, or they will hoard even more as they understand how difficult it is to get wealthy and they will not be happy to part with their hard earned economic gains.
    SPENDING IS THE PROBLEM, YOU MORONS. IF TAXING CIGARETTES IS DESIGNED TO DISCOURAGE SMOKING, WHAT LOGIC IS THERE TO TAX INCOME MORE?

  13. john personna says:

    Just an observation, about 50% pay no taxes

    False.  Someone told you that 50% pay no income tax, ignoring payroll tax, state tax, sales tax, etc. in the very hope that you would draw that wrong conclusion.

    Oh, and they pay no income tax because we consider them too poor to do so.

  14. Rick DeMent says:

    The economic ignorance of those of you who favor raising taxes is breathtaking …
     
    Actually, it’s kind of the other way around. Never in the post war period has raising taxes on the top tire resulted in the doom and gloom promised. Taxes are as low as that have been in most of our lifetime, labor is cheaper then is has been in most of our lifetime, money is cheaper then it has been in most of out lifetime. A few % points of tax will not change anyone’s decision and if it does they should go out of business and leave running one to those who know how to.
     
     

  15. c.red says:

    Presonally I favor letting all the tax cuts expire as planned, but I am definitely in the minority.

    It makes me sad, but I’m pretty certain pushing this off until after the election is a ploy by some members of the Democratic Party to see all the tax cuts extended. They believe they can blame it on Republicans and/or that people will forget before 2012. If there is a Republican majority and if they frame it right (a couple very big ifs) it could even be done in such a way as to override a veto. I don’t want it, but it is the only reasoning I can see to delay a vote.

    c’est la vie and all that…

  16. john personna says:

    Given that we are in a long slog with the economy, a 10-year schedule of rate increases (and/or credit decreases) would be optimal.  In fact, you could even do the short-term payroll tax holiday within that 10-year schedule.  As long as you make the revenue curve match the spending curve over time, you’ll be fine.
     
    Too bad it’s all about 3 months from September to November, eh?

  17. john personna says:

    BTW, I would definitely eliminate the mortgage interest deduction over that 10 years.  10% reduction each year.

  18. James says:

    Too poor is political spin, I remember when everyone payed taxes.

    About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That’s according to projections by the Tax Policy Center, a Washington research organization.

    http://finance.yahoo.com/news/Nearly-half-of-US-households-apf-1105567323.html?x=0&.v=1

  19. Herb says:

    “I would definitely eliminate the mortgage interest deduction over that 10 years. 10% reduction each year.”

    That’s an interesting idea, JP. I’m against eliminating the mortgage interest deduction, and I’ll freely admit it’s because I’m a beneficiary. But phasing it out over time makes it more palatable.

  20. john personna says:

    So James, you would have a 60-something with Social Security and no additional income pay income taxes?  Really?
     
    I mean, we could adjust SS up, in order to make up for the tax paid back, but what’s the point other than spiritual window dressing (that “everyone should pay tax.”)
     
    (I also note that you say ” remember when everyone payed taxes” ignoring that everyone does pay all kinds of taxes.)

  21. john personna says:

    … maybe James just  wants that game.  Have the poor pay more tax, but give them more benefits so that they can cover those taxes.

  22. reid says:

    “We hope Democrats . . . will cooperate despite their burning desire to raise taxes on small businesses and families in the middle of a recession,” said Don Stewart, a spokesman for Sen. Mitch McConnell (R-Ky.).

     
    What would it take for the press to call him on such an obvious lie?  Nothing’s out of bounds these days, I guess.  Maybe Harry Reid’s spokesman should mention the Republicans burning desire to reinstate slavery and criminalize Islam.

  23. James says:

    Adam Smith, F A Hayak, Milton Friedman, Walter Williamas, Thomas Sowell

    (Keynesian = National Debt)

  24. john personna says:

    I’m all for reducing spending James.  What’s that got to do with phony taxes?
     
    (Another interesting topic, but one seldom seriously discussed, is what “poor in America” means, and should mean.  “15 Shocking Poverty Statisticshttp://www.ritholtz.com/blog/2010/09/15-shocking-poverty-statistics/ )

  25. James says:

    We the people learned we were poor in the 60’s. My Grandfather worked for .50 cents
    Father .90 cents and myself 2.25, we were never upside down on payments.

    Lived in self constructed houseing and drove old beater cars. Dad purchase maybe
    three new cars in his life time. Lived 50 yrs in the house he built.
    Create your own reallity, Cash in the Mail box are poor odds.

      If you are broke a good place to go is work.

  26. wr says:

    Thank you for your folksy wisdom, James. Why don’t all these people who are out of work just go get jobs? Not only would it give them money, it would eliminate unemployment. You should be in charge.

    As for lliving in “self-constructed housing,” that’s great if you can build a tarpaper shack in Hog Wallow, Arkansas, not so much if you’re actually in commuting distance of civilization. Land in populated parts of the country costs a lot of money.

  27. James says:

    Check your balance sheet we are all poor, 14 Trillion /130 Trillion National Debt how much per household?

    The tar paper shacks are still with us, it’s core problem is not money,

    the New Deal is still with us. Empthy is not a solution, corruption left or right, morles,

    “Goverment Co Conspirters” take your pick. Cash in the Mail box is poor business 

    modle.  All further family’s are at risk financially, Government is picking our pockets.

    At time we were the Walton’s three generations in a single family home.

    Those that will not help their family’s are worse then none believers